Earnings Tell The Story For Tong Yang Industry Co., Ltd. (TWSE:1319) As Its Stock Soars 27%

The Tong Yang Industry Co., Ltd. (TWSE:1319) share price has done very well over the last month, posting an excellent gain of 27%. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, it's still not a stretch to say that Tong Yang Industry's price-to-earnings (or "P/E") ratio of 18.9x right now seems quite "middle-of-the-road" compared to the market in Taiwan, where the median P/E ratio is around 20x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Tong Yang Industry has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Tong Yang Industry

Want the full picture on analyst estimates for the company? Then our free report on Tong Yang Industry will help you uncover what's on the horizon.

Is There Some Growth For Tong Yang Industry?

The only time you'd be comfortable seeing a P/E like Tong Yang Industry's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. Pleasingly, EPS has also lifted 537% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 19% as estimated by the five analysts watching the company. That's shaping up to be similar to the 20% growth forecast for the broader market.

In light of this, it's understandable that Tong Yang Industry's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Tong Yang Industry's P/E?

Tong Yang Industry's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Tong Yang Industry maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Tong Yang Industry that you should be aware of.

You might be able to find a better investment than Tong Yang Industry. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.